Fraud charges laid against ex-Nortel officers
CATHERINE MCLEAN
Globe and Mail Update
http://www.theglobeandmail.com/servlet/story/RTGAM.20070312.wnortel0312/BNStory/Business/home
The U.S. Securities and Exchange Commission has filed charges against four former executives at Nortel Networks Corp., accusing them of engaging in accounting fraud to meet earnings forecasts.
The Ontario Securities Commission, meanwhile, says it will hold a hearing on a series of issues involving three of the executives.
Nortel's former chief executive officer Frank Dunn, former chief financial officer Douglas Beatty, and former controllers Michael Gollogly and MaryAnne Pahapill were charged by the SEC Monday.
“The fraudulent conduct at issue here was egregious and long-running,” Linda Thomsen, director of the SEC's division of enforcement, said in a statement. “Each of the defendants betrayed Nortel's investors and their misconduct gave rise to billions of dollars in shareholder losses. The action we take today sends a strong message that officers of U.S.-filing foreign corporations will be held to the same standards of accountability that are required of all participants in the U.S. financial markets.”
Nortel Networks President and CEO Frank Dunn responds to reporters questions at a news conference following their annual meeting in Ottawa on Thursday April 24, 2003. The U.S. Securities and Exchange Commission is filing civil charges against four former executives of Canada's Nortel Networks, including ex-CEO Frank Dunn, after investigating the company's financial accounting and restatements, Monday March 12, 2007. (CP PHOTO ARCHIVES/ Chris Wattie) CANADA
The SEC, which started its investigation nearly three years ago, said it's seeking a permanent injunction, civil monetary penalties, officer and director bars, and disgorgement with prejudgment interest against all four defendants.
The announcement came the same day the OSC said it will hold a hearing on May 1 on a range of issues related to Mr. Dunn, Mr. Beatty, and Mr. Gollogly, including whether they should cease trading in securities, resign and be barred from any positions as a director or officer, and be reprimanded.
In a statement, Mr. Dunn said he welcomed the OSC's hearing. "I am looking forward to the opportunity that this open and transparent process will give for the truth to finally come out about the events of 2000 and 2003," Mr. Dunn said. "I expect the commission will conduct a full and fair hearing and will allow all interested parties to fully participate in the hearing. I believe an important outcome of this hearing will be the resolution of the negative perception, created through 2004 and 2005, of the commitment, dedication and, above all, the integrity of Nortel employees."
Mr. Dunn also said in a separate statement that he was disappointed with the SEC charges. “I think it would have been appropriate, under the circumstances, if the authorities in the United States had deferred to the Ontario Securities Commission in what is really a Canadian matter, and had acknowledged that the Canadian authorities are fully capable of addressing these important issues,” Mr. Dunn said. “I hope that, so that the issues can now be fully and fairly explored, they will be dealt with in a hearing in Canada.”
A lawyer for Mr. Gollogly couldn't immediately be reached for comment on the SEC charges. Ms. Pahapill, an employee of Toronto-Dominion Bank, couldn't immediately be reached for comment. Mr. Beatty's lawyer, James Douglas, declined to comment on the SEC charges.
The Toronto-based company has been rocked in recent years by an accounting scandal that led to a plunge in its share price, numerous shareholder lawsuits, and probes by both the SEC and the Ontario Securities Commission. Nortel's executive suite and board has been overhauled as the company seeks to exit from accounting woes that still plague it. In recent weeks, Nortel said it would have to restate results for the fourth time in as many years.
Nortel issued its first restatement at the end of 2003. When the need for another restatement came to light in March, 2004, the Toronto-based company put Mr. Dunn, Mr. Beatty and Mr. Gollogly on leave and then fired them a month later. Seven other Nortel finance employees were dismissed later that year. Ms. Pahapill, along with William Kerr were named Nortel's permanent controller and CFO, respectively, in April, 2004. Ms. Pahapill and Mr. Kerr left in 2005 after Nortel named banking executive Peter Currie as CFO.
An internal review conducted by Washington, D.C., law firm Wilmer Cutler Pickering Hale and Dorr LLP and issued by Nortel in January, 2005, blamed Mr. Dunn and his financial team for the company's accounting woes. It alleged they transferred items from one side of the ledger to the other in order to meet targets and generate bonuses. It also said that a lack of technical expertise among Nortel's accounting staff, weakness in internal controls, and a complicated business unit structure were also at fault.
“The defendants charged today all disregarded accounting principles and disclosure requirements designed to provide investors with a clear and accurate picture of a company's performance,” Christopher Conte, an associate director of the SEC's division of enforcement said in a statement.
“Investors were misled for extended periods of time about the health and stability of Nortel's operations. Further, these defendants all received significant compensation, in some cases in the millions of dollars, while they were manipulating Nortel's financial results. In some cases, these individuals received such compensation only because they manipulated Nortel's financial results.”
The SEC said it filed the charges in the U.S. district court for the Southern District of New York. The SEC alleges the acts took place between September, 2000, and January, 2004. Mr. Dunn held the position of CFO until he took over the CEO role from John Roth in 2001. Mr. Beatty was controller and CFO during the period, while Ms. Pahapill was assistant controller and vice-president of corporate reporting.
“We have no comment on any proceedings against former officers or employees of the company,” said Jay Barta, a Nortel spokesman. “Nortel continues to co-operate fully with the OSC.”
In its statement, the SEC acknowledged the assistance of the OSC.
The RCMP has not laid criminal charges in the Nortel case, but a spokeswoman confirmed the force's elite Integrated Market Enforcement Branch, which handles white-collar securities crimes, is continuing to work on the file.
"It's still under investigation," Sergeant Michele Paradis said.
CATHERINE MCLEAN
Globe and Mail Update
http://www.theglobeandmail.com/servlet/story/RTGAM.20070312.wnortel0312/BNStory/Business/home
The U.S. Securities and Exchange Commission has filed charges against four former executives at Nortel Networks Corp., accusing them of engaging in accounting fraud to meet earnings forecasts.
The Ontario Securities Commission, meanwhile, says it will hold a hearing on a series of issues involving three of the executives.
Nortel's former chief executive officer Frank Dunn, former chief financial officer Douglas Beatty, and former controllers Michael Gollogly and MaryAnne Pahapill were charged by the SEC Monday.
“The fraudulent conduct at issue here was egregious and long-running,” Linda Thomsen, director of the SEC's division of enforcement, said in a statement. “Each of the defendants betrayed Nortel's investors and their misconduct gave rise to billions of dollars in shareholder losses. The action we take today sends a strong message that officers of U.S.-filing foreign corporations will be held to the same standards of accountability that are required of all participants in the U.S. financial markets.”
Nortel Networks President and CEO Frank Dunn responds to reporters questions at a news conference following their annual meeting in Ottawa on Thursday April 24, 2003. The U.S. Securities and Exchange Commission is filing civil charges against four former executives of Canada's Nortel Networks, including ex-CEO Frank Dunn, after investigating the company's financial accounting and restatements, Monday March 12, 2007. (CP PHOTO ARCHIVES/ Chris Wattie) CANADA
The SEC, which started its investigation nearly three years ago, said it's seeking a permanent injunction, civil monetary penalties, officer and director bars, and disgorgement with prejudgment interest against all four defendants.
The announcement came the same day the OSC said it will hold a hearing on May 1 on a range of issues related to Mr. Dunn, Mr. Beatty, and Mr. Gollogly, including whether they should cease trading in securities, resign and be barred from any positions as a director or officer, and be reprimanded.
In a statement, Mr. Dunn said he welcomed the OSC's hearing. "I am looking forward to the opportunity that this open and transparent process will give for the truth to finally come out about the events of 2000 and 2003," Mr. Dunn said. "I expect the commission will conduct a full and fair hearing and will allow all interested parties to fully participate in the hearing. I believe an important outcome of this hearing will be the resolution of the negative perception, created through 2004 and 2005, of the commitment, dedication and, above all, the integrity of Nortel employees."
Mr. Dunn also said in a separate statement that he was disappointed with the SEC charges. “I think it would have been appropriate, under the circumstances, if the authorities in the United States had deferred to the Ontario Securities Commission in what is really a Canadian matter, and had acknowledged that the Canadian authorities are fully capable of addressing these important issues,” Mr. Dunn said. “I hope that, so that the issues can now be fully and fairly explored, they will be dealt with in a hearing in Canada.”
A lawyer for Mr. Gollogly couldn't immediately be reached for comment on the SEC charges. Ms. Pahapill, an employee of Toronto-Dominion Bank, couldn't immediately be reached for comment. Mr. Beatty's lawyer, James Douglas, declined to comment on the SEC charges.
The Toronto-based company has been rocked in recent years by an accounting scandal that led to a plunge in its share price, numerous shareholder lawsuits, and probes by both the SEC and the Ontario Securities Commission. Nortel's executive suite and board has been overhauled as the company seeks to exit from accounting woes that still plague it. In recent weeks, Nortel said it would have to restate results for the fourth time in as many years.
Nortel issued its first restatement at the end of 2003. When the need for another restatement came to light in March, 2004, the Toronto-based company put Mr. Dunn, Mr. Beatty and Mr. Gollogly on leave and then fired them a month later. Seven other Nortel finance employees were dismissed later that year. Ms. Pahapill, along with William Kerr were named Nortel's permanent controller and CFO, respectively, in April, 2004. Ms. Pahapill and Mr. Kerr left in 2005 after Nortel named banking executive Peter Currie as CFO.
An internal review conducted by Washington, D.C., law firm Wilmer Cutler Pickering Hale and Dorr LLP and issued by Nortel in January, 2005, blamed Mr. Dunn and his financial team for the company's accounting woes. It alleged they transferred items from one side of the ledger to the other in order to meet targets and generate bonuses. It also said that a lack of technical expertise among Nortel's accounting staff, weakness in internal controls, and a complicated business unit structure were also at fault.
“The defendants charged today all disregarded accounting principles and disclosure requirements designed to provide investors with a clear and accurate picture of a company's performance,” Christopher Conte, an associate director of the SEC's division of enforcement said in a statement.
“Investors were misled for extended periods of time about the health and stability of Nortel's operations. Further, these defendants all received significant compensation, in some cases in the millions of dollars, while they were manipulating Nortel's financial results. In some cases, these individuals received such compensation only because they manipulated Nortel's financial results.”
The SEC said it filed the charges in the U.S. district court for the Southern District of New York. The SEC alleges the acts took place between September, 2000, and January, 2004. Mr. Dunn held the position of CFO until he took over the CEO role from John Roth in 2001. Mr. Beatty was controller and CFO during the period, while Ms. Pahapill was assistant controller and vice-president of corporate reporting.
“We have no comment on any proceedings against former officers or employees of the company,” said Jay Barta, a Nortel spokesman. “Nortel continues to co-operate fully with the OSC.”
In its statement, the SEC acknowledged the assistance of the OSC.
The RCMP has not laid criminal charges in the Nortel case, but a spokeswoman confirmed the force's elite Integrated Market Enforcement Branch, which handles white-collar securities crimes, is continuing to work on the file.
"It's still under investigation," Sergeant Michele Paradis said.
